The "fiscal cliff" negotiations have come and gone, finally. And although many of our Michigan readers were probably glad to hear it, if for no other reason than hoping that the news might cover a different topic, many will not be able to move on from the negotiations as quickly as they would like. For tax planning purposes, some of the details of the deal that was reached should catch many of our readers' attention, and a recent article in Forbes explored those very details in depth. Some of the changes that will take effect will most likely further enhance the value of trusts in protecting inheritance.
The first and most obvious change was the increase in the income tax rate for those couple making more than $450,000 per year. But, for estate planning purposes, the real numbers to pay attention to are the estate tax changes.
Thankfully, the individual number for the estate tax exemption remained unchanged at $5.12 million. What does this mean? It means that if a person dies and their estate does not exceed that amount, they will not be subject to the estate tax. The bad news? If a person's estate does exceed that amount, the estate tax has risen as well.
The estate tax will increase from 35 percent to 40 percent. Although this may seem like a modest increase when compared to the fact that several years ago the rate was actually 55 percent, the change will necessitate some changes to an estate plan for many.
When it comes to protecting an estate, tax changes will always need to be taken into account. For those who want to maximize the portion of their estate which is conserved and passed on to their designated beneficiaries, trusts are often the best option.
Source: Forbes, "More Estate Tax Changes Could Follow Fiscal Cliff Deal," Hani Sarji, Jan. 6, 2013